A fully automatic chucker and bar machineis to be purchased for $45,000. The money will beborrowed with the stipulation that it be repaid withsix equal end-of-year payments at 12% compoundedannually. The machine is expected to provide annualrevenue of $13,000 for six years and is to be depreciated by the MACRS seven-year recovery period. Thesalvage value at the end of six years is expected tobe $4,000. Assume a marginal tax rate of 35% and aMARR of 15%.(a) Determine the after-tax cash flow for this assetover six years.(b) Determine whether the project is acceptable onthe basis of the IRR criterion.
A fully automatic chucker and bar machineis to be purchased for $45,000. The money will beborrowed with the stipulation that it be repaid withsix equal end-of-year payments at 12% compoundedannually. The machine is expected to provide annualrevenue of $13,000 for six years and is to be depreciated by the MACRS seven-year recovery period. Thesalvage value at the end of six years is expected tobe $4,000. Assume a marginal tax rate of 35% and aMARR of 15%.(a) Determine the after-tax cash flow for this assetover six years.(b) Determine whether the project is acceptable onthe basis of the IRR criterion.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A fully automatic chucker and bar machine
is to be purchased for $45,000. The money will be
borrowed with the stipulation that it be repaid with
six equal end-of-year payments at 12% compounded
annually. The machine is expected to provide annual
revenue of $13,000 for six years and is to be
salvage value at the end of six years is expected to
be $4,000. Assume a marginal tax rate of 35% and a
MARR of 15%.
(a) Determine the after-tax
over six years.
(b) Determine whether the project is acceptable on
the basis of the
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